Research on the Structure of China’s Enterprise Income Tax Law System.docx

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1、Research on the Structure of Chinas Enterprise Income Tax Law SystemYinying WangABSTRACT The PRC enterprise income tax law was enacted on January 1, 2008, with accordance to which the enterprise income tax law system has been changing. It took a long time to promulgate the law just as it takes and w

2、ill take certain period to integrate the system from the constitutional law to tax polices. The lack of taxing power under constitutional law, the silence of a basic tax law, and the arbitrary of tax policy issuance lead to an unstable structure of enterprise income tax law system. Lawmakers shall a

3、nnounce the taxing power under the constitutional law, form a general tax law, and take time to screen tax policies to improve the system. Keywords: Enterprise Income Tax Law, Restructure, Comparison 1. Introduction Corporate income tax is a tax imposed for each taxable year on the taxable income of

4、 every corporation. It is the term that widely used in the world, for example, known as Corporate Tax in the US. However, the term China adopts for the corporate income tax is “enterprise income tax”, and it named the new law promulgate in 2008 the “Enterprise Income Tax Law of Peoples Re- public of

5、 China” (hereinafter “EIT Law”). Imposed on various incomes of enterprises such as incomes from sales, services, interests, or the rental property, the tax is playing a more and more important role in China. When talking about a law system, it refers to a set of rules dispersed among various statute

6、s while they work together on a certain subject of law. If we collect those rules and classify them by sources, the conceptual shape of a system should be a pyramid the most stable structure. The taxation article under the constitutional law sits at the top leading the basic tax law as well as enter

7、prise income tax law followed by tax rulings and policies at the bottom. The lower the level is, the more rules are there in this level, but each level shall has appropriate number of regulations in order to keep the shape. Apply pyramid theory to Chinas enterprise income tax law system. Besides the

8、 fact that the constitutional law is the mother law of all law fields, there is no basic law at the top while too many policies and rulings at the bottom in the enterprise income tax law department. Two laws, Enterprise Income Tax Law of the Peoples Republic of China and Law of the Peoples Republic

9、of China on Tax Administration (hereinafter “Tax Ad- ministration Law”) lead the system. The former one is a substantive law while the latter is a procedural law. Last, 2997 rules, explanations, circulars, and notices issued by both central government and local government sit in the bottom level suc

10、h as the Notice of the State Administration of Taxation on Some Tax Treatment Issues during the Implementation of the Enterprise Income Tax Law . Therefore, the proportion of pyramid is 0:2:15:2997. The quick economic development involves arbitrary issuance of tax policies and rulings. China is maki

11、ng progress each year, accompany with which the market changes and becomes more and more sophisticated. Meanwhile, problems have appeared case by case, some of which have similar situation while others are particular or unique. Since making a new law requires complicated processes and is time-consum

12、ing, a quick and effective way instead is to issue policies. Moreover, it is unlikely to make laws for each case unless the problem goes wild in the country. That is the reason many explanations, measures, and notices have been issued to rule individual cases or to deal with particular law applicati

13、on problem. Three aspects compose the incompleteness of the structure of enterprise income tax law system: the lack of taxing power under constitutional law, the silence of a basic tax law, and the arbitrary of tax policy issuance. In the following sections, each aspect is discussed one after anther

14、 through introduction of countries with comparatively more sophisticated corporate income tax law sys- tem such as the US and the UK for the purpose of pro- viding China with possible options for the restructure of the system. When the taxing power is announced under the constitutional law, a basic

15、tax law is made, and tax rulings are simplified and consistent, the disproportionate layer of enterprise income tax law system will be fixed. 2. Taxing Power under the Constitutional Law The power to tax is a basic incident of sovereignty. A tax is primarily a means of raising revenue, and the power

16、 to tax involves the power to destroy. Given such a characteristic, this power is normally controlled and limited by the constitutional law, The purpose of such arrangement is to lower the possibility of power abuse in the democratic society. The enterprise income taxing power shall be part of it. H

17、owever, such mechanism has not appeared in China. The “reform and open-up policy” in 1978 began to change the countrys economic and social structures, but it has not made any difference in regulating taxing power in the constitutional law till today. Only the obligation of citizens to pay taxes can

18、be found under PRC Constitution. The power to tax enterprises is not under the constitution. Constitutional law is supreme to all laws in a country and it regulates sources of powers. Without the highest-level legal authorization, power is easily abused and the people would have been suffered. There

19、fore, the constitutional law, as the mother law in a country, has to take the responsibility to draw lines of imposing taxes with the due process. Both the US and the UK have articles regulating taxing power under constitutional laws. The British Constitution, not written in one single document, whi

20、ch includes statutes such as the Magna Carta of 1215, the Act of Settlement of 1701, Laws and Customs of Parliament, political conventions, case law, and constitutional matters decided in a court of law or written by constitutional experts. Magna Carta opens a new page of UK constitution by limiting

21、 kings power including imposing taxes to the law. The Petition of Right is also a major English constitutional document, which was produced by the English Parliament in the run-up to the English Civil War, and was passed by Parliament in May 1628. It sets out specific liberties that the king is proh

22、ibited from in- fringing, especially is most notable for its confirmation of the principles that taxes can be levied only by Parliament.Unlike the arrangement in United Kingdom, United States authorizes taxing power to the Congress under the codified Constitution. Article 1 section 8 Clause 1 was kn

23、own as Taxation Clause, which says, the congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States. Th

24、e Congress represents the people of the United States. Therefore, the right to tax is in the hands of its people. Therefore, they apply to corporate income taxes with- out any doubt. On the other hand, to levy corporate taxes within the power of the people through legal procedures in two countries r

25、eveal two different formations. In the UK, the power is put under several independent constitutional documents that claiming peoples rights. However, the United States arranges the power in the Congresss rights part under the Constitution. Besides, the UK declares Parliaments consent to impose tax g

26、enerally in its Constitution while the US further confirms Congresss power to lay tax on incomes especially because income tax always contributes the most internal revenue in the country since 1960. The tax clause under Chinas Constitutional law only provides peoples obligation to pay taxes, It is u

27、nder the chapter of peoples rights and obligations. Nevertheless, it is not enough. Many scholars argue that basic principles regarding taxation have to be put in the constitutional law. For instance, fairness, no tax above the law, right of people to supervise tax collection, separation of taxing p

28、ower between the central government and local government, transparency and efficiency and basic collecting procedures etc. In my opinion, articles in the constitutional law should be general, simple and highly condensed since it is the mother law in a countrys legal system. There is no need to speci

29、fy any tax matters due to the particular need of taxation. Principles of fairness, transparent, efficiency or no tax above the law is suitable, but others such as basic procedures or separation of powers are too detailed to fit in. 3. The Screening of Tax Policies and Rulings Most enterprise income

30、tax policies or rulings are issued by national tax administrations upon official opinions of applying rules. They are bridging over demands of indi- vidual taxpayers and the application of rules. When an enterprise income tax issue arises without recognized by laws, a ruling is used to explain how t

31、he case shall be dealt with. In the case that nowhere else could find any opinion on the situation, then rulings are required to fill the blank in the area. Countries like the US, the UK circulate tax policies although forms and authorities in charge are different. The United States has two governme

32、nt administrations to issue tax rulings. One of them is the Office of Tax Policy of the Department of Treasury. As one of its component office, the office assists the Secretary in developing and implementing tax policies, establishing policy criteria reflected in regulations and rulings and guides p

33、reparation of them with the Internal Revenue Service to implement and administer the Internal Revenue Code, and providing economic and legal policy analysis for domestic and international tax policy decisions. The office is composed of two office, one of which is the Office of the Tax Legislative Co

34、unsel develops and reviews policy, legislation, regulations, revenue rulings, revenue procedures, and other published guidance dealing with all aspects of domestic federal income tax law. The other is the Internal Revenue Service (“IRS”). The IRS is a bureau of the Department of the Treasury. The mi

35、ssion of the IRS is to help Americas taxpayers understand and meet their tax responsibilities; to correctly apply the laws enacted by Congress; to determine the reasonable meaning of various Internal Revenue Code provisions in light of the Congressional purpose in enacting them; and to perform this

36、work in a fair and impartial manner, with neither a government nor a taxpayer point of view. In the United Kingdom, the HM Treasury and the HM Revenue & Customs (“HMRC”) are two government organizations dealing with taxes. The Treasurys main tax related job is to make bills while HM Revenue & Custom

37、s is to issue publications and rules in daily practice HMRC, similar to IRS in the US, and the work is still continuing on their office-restructuring program . They ensure the correct tax is paid at the right time, collect and administer direct taxes such as capital gains tax, corporation tax, incom

38、e tax, inheritance tax, and national insurance contributions as well as indirect taxes, and so on. In China, State Administration of Taxation (SAT) mainly takes charge of publishing tax policies and rules in form of “Notice” or “Reply”. Since tax laws are in lack and rules that are supposed to be re

39、gulated by tax laws are now included in regulations, tax rulings are taking the position of both regulations as well as rulings. Moreover, tax policies changed a lot for foreign in- vestment. For example, the tax incentive of tax refund to foreign enterprises when purchasing domestic equipment. The

40、administrative measure concerning tax credit for enterprise income tax was published by SAT on May 18, 2000. In 2004, the preferable measure was further awarded to enterprises that were not qualified in the previous rulings in order to include more foreign enterprises as an attractive measure. After

41、 five years implementing the measure, many individual cases were reported to the SAT for specific rulings. After the enactment of new EIT Law, both the measure of tax refund of value added tax and that of tax credit of enterprise income tax were abandoned in the year 2008. 4. Suggestions of Restruct

42、uring the System Legal system is formed by rules from different legal sources. Legal sources are distinguished by powers that are authorized. Chinas constitutional law ranks at the top in the hierarchy followed by “basic laws” made by National Peoples Congress and other “laws” made by its standing c

43、ommittee. Article 62 of Chinas Constitutional Law authorizes the National Peoples Congress the power to enact and amend basic laws governing criminal offenses, civil affairs, the state organs, etc. Article 67 of Chinas Constitutional Law authorizes NPC Standing Committee the power to enact and amend

44、 laws except those enacted by the National Peoples Congress. The level below “the law” is “the regulation” made by State Council. Article 89 of Chinas Constitutional Law authorizes State Council the power to adopt administrative measures, to enact administrative rules and regulations and to issue de

45、cisions and orders in accordance with the Constitution and the law. Apply the mechanism structured by the constitutional law, Chinas ideal enterprise income tax law system should be as followed. The first level is constitutional law addressing the power to tax. The next level includes the basic tax

46、law or both the basic tax law and the tax collection law, which are under the responsibility of National Peoples Congress. If China adopts the model to make the basic tax law as basic substantive law parallel to the tax collection law as basic procedural law, both basic tax law and tax collection la

47、w shall be in this level. If China chooses to make basic tax law into a general rule covering both substantive and procedural areas, only the basic tax law stands in this level. The third level includes the enterprise income tax law. The fourth level contains implementing measures that supplement to

48、 laws, known as Regulation on the Implementation of the Enterprise Income Tax Law of the Peoples Republic of China. The last level collects tax policies and rules issued by National Taxation Administration, Ministry of Finance, Ministry of Science and Technology and so forth. Theoretically, China co

49、nfronts difficulties to complete the system designed by the constitutional law in the second and third level. The tax collection law was made by NPC Standing Committee, which sits it in the category of the law rather than the basic law. How can it parallel with the basic tax law? On the other hand, the enterprise income tax law was made by National Peoples Congress, which categorized it into the second level instead of the third. Does this mean it is categorized in the same level with the basic tax law? Then ho